Gyroscopic Investing

This year I started using PRPFX for a small portion of my portfolio.  I just received a letter from them asking me to pick a cost basis method. 

The default is Average Cost.

I'm using this fund to set aside money for my son (not for expenditures, but just so I'll have a chunk of change to give him 20 or so years from now).

I AIP a few hundred bucks a month for it, and occasionally buy more during pullbacks. 

Any opinions as to what cost basis method is best for me?

I won't interpret any advice as professional tax advice, and will consult my accountant as well.  Just curious to hear opinions. 


Thanks,
Adam

As a general rule, individual identification is my favorite, because if you're willing to take the time you can always get the most desireable possible result.

That said, I don't know how that would fit into the new reporting requirements.

So, therefore, I think LIFO would be most likely to bring about the best results.

I've been meaning to talk to one of the smarter guys in my office about this, though, so don't be too hasty if you have some time on this issue.  I'll report what I hear.

moda0306 wrote: As a general rule, individual identification is my favorite, because if you're willing to take the time you can always get the most desireable possible result.

That said, I don't know how that would fit into the new reporting requirements.

So, therefore, I think LIFO would be most likely to bring about the best results.

I've been meaning to talk to one of the smarter guys in my office about this, though, so don't be too hasty if you have some time on this issue.  I'll report what I hear.

Percentage-wise, what do think the difference is?

I'm buying PRPFX monthly in my taxable account. I selected specific share identification method as it provides better control over cost basis when doing tax harvesting. Also, it allows to avoid capital gain taxes if I donate shares to a non-profit organization.

I think average cost method works better when taxes are not a concern (like in IRA).

Adam,

It really depends on what the behavior of the asset is and why you're selling it... usually when rebalancing LIFO will do just fine, because the highest-priced shares are most likely your most recent.

When loss-harvesting, this isn't the case.  As the reason you are loss-harvesting is usually a recent drop in the asset.

When I say LIFO, keep in mind you can get into short-term capital gain situations that are definitely not ideal.

moda0306 wrote: Adam,

It really depends on what the behavior of the asset is and why you're selling it... usually when rebalancing LIFO will do just fine, because the highest-priced shares are most likely your most recent.

When loss-harvesting, this isn't the case.  As the reason you are loss-harvesting is usually a recent drop in the asset.

When I say LIFO, keep in mind you can get into short-term capital gain situations that are definitely not ideal.

My accountant says it probably doesn't really matter, unless the fund is very volatile.  Do you agree?

Really, it doesn't matter all that much to the average person.

The thing is I'm a stickler for this stuff and I want my accountant (me) doing what they can do to eliminate or defer my tax liability as much as possible.

In a world of .5% savings account rates, $10,000 of savings will earn me only $50 by the end of the year.  I don't want lazy tax-prep work to wipe out the income that $10,000 is providing me during the year.  I tend to think of it that way.